Blackstone Dealmaker Says Tax Cut, Tech Make Cycle Different

  • New hire Shepherd to build out life sciences investment push
  • India is firm’s top region at 30% annualized returns: Melwani

A top Blackstone Group LP dealmaker said he’s more comfortable paying high prices because of tax reform, technology-driven efficiencies and corporate confidence.

“This cycle actually is different,” said Prakash Melwani, the chief investment officer of Blackstone’s private equity business. “Business is really good, and business is really good globally. Valuations are much more fundamentally driven.”

While private equity firms on average are paying the highest-ever multiples of earnings in deals, the valuations can often be justified, Melwani said. The lowered corporate tax rate in the U.S., for example, means higher after-tax cash flow, justifying higher prices, he said.

Technology is also lifting valuations, said Melwani, who spoke Friday at the Columbia Business School Private Equity Conference in New York. Buyout firms that can use tech to cut costs and increase earnings are able to reduce the multiple they paid to acquire a company.

“Technology makes our operating businesses more efficient; therefore multiples change,” Melwani said. “It’s one of the big tailwinds right now to the corporate sector and to private equity if you can implement it well.”

‘Big Area’

Melwani said the New York-based firm has started an effort to invest in life sciences, hiring an executive within the private equity business to oversee the move with plans to build a team for it. Craig Shepherd, a former dealmaker at life sciences private equity firm DRI Capital, joined Blackstone in September as a partner to lead the push, a spokeswoman for the firm said.

“We do think it’s going to be a big area,” Melwani said.

Melwani, who chairs the investment committees in Blackstone’s $106 billion private equity unit, said India has been the group’s most successful region during the past five years. Annualized returns on its investments there have been about 30 percent, he said. Debt and equity capital markets aren’t as developed in India as in North America and Europe, making equity providers more valuable, he said.

“If you can provide equity and actually improve operating businesses, it doesn’t feel anywhere as competitive as it does in the Western economies,” he said.

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